What is Division 296? Tax Changes in Super Explained

Following the Federal Election and the continuation of a Labor Government, the proposed tax on larger superannuation balances has returned to the spotlight. The Better Targeted Superannuation Concessions Bill seeks to introduce an additional 15% tax on superannuation earnings—including unrealised capital gains—for individuals whose Total Superannuation Balance (TSB) exceeds $3 million. 

How the Tax Works

If enacted, the proposed Division 296 tax will apply to earnings attributable to the portion of an individual’s super balance that exceeds $3 million, as measured on 30 June 2026. The calculation includes unrealised gains and is based on the proportion of the balance above the threshold. 

For example:

• Retiree, ‘Andrew’ has $5.5 million in super by 30 June 2025 and his balance grows to $6 million by 30 June 2026 with income and capital growth.
• Andrew makes no contributions or withdrawals during the year. Therefore, his calculated earnings are $500,000.
• As 50% of Andrew’s account balance is over $3 million, 50% of the calculated earnings ($250,000) will be taxed an extra 15% (an effective tax of 30%).
• This results in an extra $37,500 in tax. Andrew could pay this tax personally or from his super fund.

Understanding the Three Tax Buckets

Keeping in mind an eligible individual can still have up to $2 million in the tax free pension phase, superannuation remains one of the most tax-effective investment vehicles for the majority of Australians. However, for those affected by Division 296, superannuation earnings will fall into three distinct tax categories: 

1. Pension phase: 0% tax
2. Accumulation TSB up to $3M: 15% tax
3. Accumulation TSB over $3M: 30% tax

If we consider the three buckets for Andrew’s scenario, his effective tax rate would only be 17.5%.

Source: E&P Research

Strategic Considerations Under Division 296

A key concern is the inclusion of unrealised capital gains, which may create liquidity issues—particularly for SMSFs holding illiquid assets. If the fund lacks sufficient cash, assets may need to be sold or the tax paid personally. This highlights the importance of proactive planning.

For couples, the changes reinforce the value of equalising super balances. With careful planning—especially over multiple years, couples may reduce the likelihood of either partner exceeding the threshold.

Even if your current super balance is well below $3 million, future investment growth and contributions could push you above the limit.

The legislation also introduces a revised TSB definition, impacting a broader range of individuals, including those with defined benefit interests, who may face different valuation methods.

Current Status

The Bill must restart the legislative process, passing through both the House of Representatives and the Senate. As such, the proposed tax changes discussed in this article may still change.

Given the current composition of the Senate, Labor is expected to seek support from the Greens. While Labor has resisted the Greens’ previous push to lower the threshold to $2 million, negotiations may influence the final form of the legislation.

Final Thoughts

Division 296 marks a significant shift in the taxation of high-balance super accounts. While the final details may evolve, the direction is clear. Now is the time to assess your position, model future scenarios, and implement strategies to protect your retirement savings. Early, informed action—guided by professional advice—will be key to optimising outcomes.